<PAGE>
-------------------------------------------------------------------------------
                                   FORM 10-K

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 ANNUAL REPORT
                    PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended                                Commission File Number
    December 31, 1998                                             1-3985

                                EDO CORPORATION
             Exact name of Registrant as specified in its charter.

State of Incorporation:                        IRS Employer Identification No.:
      New York                                           11-0707740

                    Address of principal executive offices:
           60 East 42nd Street, Suite 5010, New York, New York 10165

                                Telephone No.:
                                (212) 716-2000

          Securities registered pursuant to Section 12(b) of the Act:

 Title of each class:                Name of each exchange on which registered:
   Common Shares                               New York Stock Exchange
par value $1 per share

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.          Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.    [ ]

State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 1, 1999 ................................ $42,576,242

Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of March 1, 1999 ................................. 6,642,268

                      Documents Incorporated by Reference

Portions of the Definitive Proxy Statement of the Registrant, dated March 17,
1999, are incorporated by reference into Part III.
-------------------------------------------------------------------------------
<PAGE>
                               Table of Contents

PART I...................................................................    1
ITEM 1.   BUSINESS.......................................................    1
DEFENSE & AEROSPACE SYSTEMS..............................................    1
Marine and Aircraft Systems..............................................    1
Aircraft Stores Suspension and Release Equipment.........................    1
Airborne Mine Countermeasures Systems....................................    1
Combat Systems...........................................................    2
Command, Control and Communications Systems..............................    2
Undersea Warfare Sonar...................................................    2
Technology Services and Analysis.........................................    2
Electro-Ceramic Products.................................................    2
Fiber Composite Products.................................................    2
SATELLITE PRODUCTS.......................................................    3
DISCONTINUED OPERATIONS..................................................    3
RESEARCH AND DEVELOPMENT.................................................    4
MARKETING AND INTERNATIONAL SALES........................................    4
BACKLOG..................................................................    5
GOVERNMENT CONTRACTS.....................................................    5
COMPETITION AND OTHER FACTORS............................................    5
EMPLOYEES................................................................    6
EXECUTIVE OFFICERS OF THE REGISTRANT.....................................    6
ITEM 2.   PROPERTIES.....................................................    6
ITEM 3.   LEGAL PROCEEDINGS..............................................    6
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............    6
ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND
          RELATED STOCKHOLDER MATTERS....................................    7
ITEM 6.   SELECTED FINANCIAL DATA........................................    7
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS............................    7
Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK......    7
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................    7
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
          ON ACCOUNTING AND FINANCIAL DISCLOSURE.........................    7
PART III.................................................................    7
ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............    7
ITEM 11.   EXECUTIVE COMPENSATION........................................    7
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
           AND MANAGEMENT................................................    7
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................    7
ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
           AND REPORTS ON FORM 8-K.......................................    8
SIGNATURES...............................................................    9
SELECTED FINANCIAL DATA..................................................   10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................   11
BUSINESS.................................................................   11
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997............................   11
FINANCIAL CONDITION......................................................   12
RESULTS OF OPERATIONS - 1997 COMPARED TO 1996............................   13
MARKET RISKS.............................................................   13
NEW ACCOUNTING STANDARD..................................................   13
YEAR 2000................................................................   14
COMMON SHARE PRICES......................................................   15
DIVIDENDS................................................................   15
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995.......................................................   15
CONSOLIDATED STATEMENTS OF EARNINGS......................................   16
CONSOLIDATED BALANCE SHEETS..............................................   17
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY..........................   18
CONSOLIDATED STATEMENTS OF CASH FLOWS....................................   19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................   20
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)..............................   32

<PAGE>

                                    PART I

ITEM 1.   BUSINESS

The term "Registrant" as used in this Annual Report refers to EDO Corporation.
The term "Company" as used in this Annual Report, except where the context
otherwise requires, includes the Registrant and its subsidiaries.

EDO Corporation was incorporated in New York in 1925 by Earl Dodge Osborn, from
whose initials "EDO" is derived.

The Company designs and manufactures advanced electronic, mechanical and
electro-optical systems and engineered materials for domestic and international
defense and industrial markets.

The Company organizes its business into two segments, which constitute its
continuing operations:  Defense and Aerospace Systems; and Satellite Products.
A description of the principal products of the Company within the two segments
is set forth below.

In 1996, the Company sold its general aviation floats business and announced
the discontinuance of its energy-related businesses.  See Note 4 on page 22 of
this Report.

In 1997, the Company also discontinued certain of its former Acoustic Products
product lines.

Refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 11 through 15, and Note 18 on page 30 of this
Report for information regarding the cost of compliance with environmental
regulations.

Certain business segment information on the Company's continuing operations is
set forth in Note 19 on pages 30 and 31 of this report.

The following discussion relates to the Company's continuing operations.

DEFENSE & AEROSPACE SYSTEMS

The Company's Defense and Aerospace Systems segment, which accounted for 85%,
78% and 73% of consolidated net sales for 1998, 1997 and 1996, respectively,
includes marine and aircraft systems, combat systems, electro-ceramic products
and fiber composite products.

Marine and Aircraft Systems

Marine and aircraft systems include the design, development and manufacture of
sophisticated mechanical, electromechanical, structural, hydrodynamic and
aerodynamic systems for military use.  Additionally, the Company provides
logistics support for such products following initial hardware deliveries
including spare and repair parts, upgrade modifications, training and technical
services.  The revenue from these support functions is a significant portion of
sales.  The major marine and aircraft systems are aircraft stores suspension
and release equipment and airborne mine countermeasures systems.

Aircraft Stores Suspension and Release Equipment

The Company developed and manufactured bomb release units (BRU) for the U.S.
Air Force F-15E, ejection release units (ERU) for the Tornado Multirole Combat
Aircraft and jettison release mechanisms (JRM) for the U.S.  Navy F-14
aircraft.  In 1998, the Company continued production of BRUs for the F-15E for
an international customer under prior orders received and new orders received
in 1998, and provided spare parts support for Tornado ERUs previously produced.
In addition, the Company continued the development of the Advanced Medium Range
Air To Air Missile (AMRAAM) launcher for the F-22 air superiority fighter.
Customer-sponsored development for this missile launcher, which employs new
internal carriage technology, is expected to continue throughout 1999.  In
addition, an order for long lead material for the first two production F-22
aircraft was received in 1998.  In 1997, the Company received a subcontract
from Boeing for development of new weapons carriage technology for application
to the Joint Strike Fighter and future aircraft.  This effort is expected to
continue throughout 1999.  Sales of aircraft stores suspension and release
equipment represented 19% of consolidated net sales in 1998, 1997 and 1996.

Airborne Mine Countermeasures Systems

The Company is the only manufacturer of the MK 105 helicopter-towed magnetic
minesweeping system designed and developed by the Company in conjunction with
the U.S.  Navy and upgraded in 1995.  The first production contract for this
upgrade was received at the end of 1995.  An additional production contract was
received in 1996.  Production under these contracts is expected to continue
throughout 1999.  An additional production order for these upgrades was
received in 1998.  Production under this contract will also continue
throughout 1999.

In 1994, the Company began work on a new U.S.  Navy funded contract to develop
a lightweight, self contained, helicopter-towed magnetic sweep for shallow
water applications.  This system underwent U.S.  Navy testing and evaluation in
1996 and was used in fleet and NATO operations in 1997.  In 1998, the Company
received an additional contract for the development of an acoustic sweep for
shallow water application.  Work on this contract will continue through 1999.
In addition, the Company continued to provide logistic

                                    Page 1
<PAGE>

support for MK 105 systems previously provided to both the U.S.  Navy and an
international customer.

For 1998, 1997 and 1996, respectively, sales of airborne mine countermeasures
systems represented 14%, 12% and 7% of consolidated net sales.

Combat Systems

Combat systems include the design, development and manufacture of command,
control and communications systems, undersea warfare systems and technology
services and analysis related to such.  In addition, the Company provides
logistics support including spare and repair parts, training and technical
services for such products.

Command, Control and Communications Systems

Command, control and communication systems include integrated command systems,
tactical data links, display consoles and communication control and monitoring
systems for domestic and international customers.  In 1998, work continued on
NATO Ship-Shore-Ship Buffer (SSSB) systems deliverable to several international
customers in 1998 and 1999.  Additionally in 1998, a contract for a major
integrated combat system was received from an international customer.  Work on
this contract is expected to continue through 2001.

Undersea Warfare Sonar

The Company has been a supplier of undersea warfare systems for more than forty
years.  In 1997, the Company completed and delivered a major signal processing
subsystem of an upgrade to the U.S.  Navy's AN/SQQ-89 undersea warfare system
to Northrop-Grumman and Lockheed Martin.  Additional funding was received in
1998 from Lockheed Martin for work on the AN/SQQ-89.  Logistics, maintenance
and training support was provided for EDO sonar systems installed in FF-1052
class ships in service for several international navies.  Work continued in
1998 for an international customer on a major upgrade to the EDO Model 610E
sonar system.  Work under this contract is expected to continue through 2003.
In 1997, the Company received an order for an additional Model 610E upgraded
sonar system for a new class of ship for this same international customer.
Work on this contract continued throughout 1998 and will be completed in 1999.

Technology Services and Analysis

In July 1998, the Company acquired substantially all of the assets of the
Technology Services Group of Global Associates, Ltd.  The business provides
technical services to various agencies of the U.S.  Department of Defense.
Such services include management services, operations analysis including but
not limited to wargaming, modeling and simulation, and systems analysis.

Electro-Ceramic Products

Piezoceramic elements convert acoustic energy to electrical energy and form the
basis of many defense and commercial products ranging from military sonars to
ink jet printers.  The Company is one of North America's leading manufacturers
of piezoceramic components for defense applications and also provides ceramics
to several commercial markets.

The Company has automated and improved its production processes and is focusing
its efforts on industrial markets in addition to maintaining its position as a
leading supplier of ceramics for military applications.  For 1998, 1997 and
1996, respectively, sales of piezoceramics represented 18%, 13% and 11% of
consolidated net sales.

The Company also designs and produces military and commercial transducers which
it provides for EDO acoustic systems as well as for the market.

The Company is developing products for the active vibration control
marketplace.  This initiative is intended to apply the Company's expertise in
piezoceramic materials and transducers to reduce vibration emanating from
industrial machinery.  Specifically, the Company has developed a product for
vibration reduction in cylindrical grinders.  In addition, the Company is
delivering products it designed and manufactured to reduce vibration in the
manufacturing process for semiconductors.

In December 1998, the Company acquired substantially all of the assets of Zenix
Products, Inc. which manufactures ferrite and dielectric ceramics for the
wireless communications base station industry.

Fiber Composite Products

The Company's fiber composite products focus on the development, production and
after-market support of its traditional composite water and waste tanks for the
commercial aviation market.  This concentrated technical and marketing effort
has yielded long-term production contracts from Boeing.  For 1998, 1997 and
1996, sales of fiber composite products represented 11%, 11% and 10% of
consolidated net sales, respectively.

In December 1998, the Company acquired Specialty Plastics, Inc., a manufacturer
of fiberglass piping principally for the deep water offshore oil industry.

                                    Page 2
<PAGE>

SATELLITE PRODUCTS

The Satellite Products segment, which accounted for 15%, 22% and 24% of
consolidated net sales for 1998, 1997 and 1996, respectively, includes
electro-optic systems supplied to the satellite market.

Electro-optic systems include the design, development and manufacture of
products and systems for satellites.  The primary products include infrared
earth sensors and sun sensors which are used to provide satellites with
information relative to stabilization and orbit position.  In 1998, the Company
continued to provide earth sensor assemblies for Hughes' GEO and ICO
satellites, to NASA for the Television and Infrared Observation Satellite
(TIROS), for the Motorola Iridium communication satellite constellation and
earth and sun sensor assemblies to DASA for the Loral Globalstar constellation.
New orders were received in 1998 for earth sensor assemblies from TRW, Hughes
and Lockheed Martin and for follow-on orders for additional sensors for
Iridium.  In addition, the Company continues to work on the Boeing Global
Positioning System (GPS) IIF program.

DISCONTINUED OPERATIONS

The Company's former energy-related businesses consisted of the following:  its
wholly-owned subsidiary EDO Energy Corporation, which provided program
management activities for compressed natural gas vehicles (CNGVs) and other
alternative fuel projects; its wholly-owned subsidiary EDO Automotive Natural
Gas, Inc.  ("EDO ANGI"), which designed and manufactured CNGV refueling
stations and related equipment; and a 50.4% interest in EDO (Canada) Ltd.
("ECL"), which designed and manufactured LiteRider(R) fuel cylinders.  The
products of these businesses were generally sold through independent
distributors and dealers to end users, and by employees of these businesses to
original equipment manufacturers.

Due to the historical and projected growth rates and financial returns of the
energy-related businesses failing to meet the Company's strategic criteria, the
Company decided in September 1996 to divest itself from these businesses.
Accordingly, in 1996, the Company recorded a provision for loss of $7,000,000,
consisting of $2,000,000 in operating losses for the phase out period, and
$5,000,000 for reduction of asset values and provisions for estimated future
disposal costs.

In 1997, the Company sold the net assets of its EDO-ANGI subsidiary.  The EDO
Energy operations were mostly discontinued in 1997 and ceased in 1998.  In
1997, ECL made a voluntary assignment in bankruptcy pursuant to the Bankruptcy
and Insolvency Act of Canada and subsequently liquidated its assets through the
equivalent of Chapter 7 of the U.S. bankruptcy laws.

The Company believes that adequate provision for the ultimate loss on disposal
of these businesses has been made in the Company's financial statements, which
provision is described in Note 4 on page 22 of this Report.

                                    Page 3
<PAGE>

RESEARCH AND DEVELOPMENT

Research and development, performed both under development contracts with
customers and at Company expense, are important factors in the Company's
business.  The Company's research and development efforts involve approximately
110 employees in the fields of combat systems, acoustic, electronic,
hydrodynamic, aerodynamic, structural and material engineering.  Research and
development programs are designed to develop new products and to extend the
capability of existing products and to assess their commercial potential.

Customer-sponsored research and development programs are principally related to
military programs.  Major customer-sponsored research and development programs
include:  improvements to the MK 105 mine countermeasures system; development
of a new shallow-water mine countermeasures system; development of new aircraft
weapons carriage technology; developments in combat systems integration; and
development of new earth and sun sensors for satellites.

Expenditures under development contracts with customers vary in amount from
year to year because of the timing of contract funding and other factors.  In
1998, customer-sponsored research and development expenditures in the aggregate
were essentially at the same level as in 1997.

Principal current Company-funded research and development includes:  image and
signal processing and other improvements for combat systems, improvements to
minesweeping technology, new techniques for aircraft weapons carriage,
continued development of satellite-based sensors and the application of
acoustic and ceramic technologies to vibration control.

The following table sets forth research and development expenditures for the
periods presented.
          ===========================================================
                                         Year Ended December 31,
                                     1998          1997          1996
                                              (in thousands)
          -----------------------------------------------------------
          Customer-sponsored   $   22,400    $   23,000    $   17,800
          Company-funded            3,500         2,100         1,000
          Total                $   25,900    $   25,100    $   18,800
          ===========================================================

MARKETING AND INTERNATIONAL SALES

Sales of the Company's defense products to both the U.S. and foreign
governments are usually made under negotiated long-term contracts or
subcontracts covering one or more years of production.  The Company believes
that its long history of association with its military customers is an
important factor in the Company's overall business, and that the experience
gained through this history has enhanced the Company's ability to anticipate
its customers' needs.  The Company's approach to its defense business is to
anticipate specific customer needs and to develop systems to meet those needs
either at its own expense or pursuant to research and development contracts.

The Company sells defense products as a prime contractor and through
subcontracts with other prime contractors.  In addition to defense sales to the
U.S.  Department of Defense, the Company also sells defense equipment to the
U.S.  Government for resale to foreign governments under the Foreign Military
Sales program and, subject to approval by the U.S.  Department of State,
directly to foreign governments.

The Company's satellite products are generally sold directly to spacecraft
manufacturers and integrators both domestically and abroad.  Where sold
internationally, the products are subject to U.S.  Department of State export
controls.

Commercial products are sold in industrial and commercial markets.  In foreign
markets, piezoelectric and electronic products are generally sold commercially
through a network of sales representatives.  Fiber-reinforced composite
products are sold, in certain product areas, on a direct basis and, in other
product areas, through sales representatives.

It is generally the Company's policy to denominate all foreign contracts in
U.S. dollars and seek not to incur significant costs in connection with
long-term foreign contracts until the Company has received advance payments or
letters of credit on amounts due under the contracts.  Recently, however, the
Company has not always been able to do so.

Refer to Note 19 on pages 30 and 31 of this Report for the amount of export
sales for the last three fiscal years.

                                    Page 4
<PAGE>

BACKLOG

A significant portion of the Company's sales are to prime contractors, the U.S.
Department of Defense and foreign governments pursuant to long-term contracts.
Accordingly, the Company's backlog of unfilled orders consists in large part of
orders under these contracts.  As of December 31, 1998, the Company's total
backlog was approximately $151.8 million, as compared with $111.6 million on
December 31, 1997.  Of the total backlog as of December 31, 1998, approximately
49% is scheduled for delivery in 1999.

GOVERNMENT CONTRACTS

Sales to the U.S.  Government, as a prime contractor and through subcontracts
with other prime contractors, accounted for 47% of the Company's 1998
consolidated net sales compared with 41% in 1997 and 36% in 1996, and consisted
primarily of sales to the Department of Defense.  Such sales do not include
sales of military equipment to the U.S.  Government for resale to foreign
governments under the Foreign Military Sales program.

The Company's defense business can be and has been significantly affected by
changes in national defense policy and spending.  The Company's U.S.
Government contracts and subcontracts and certain foreign government contracts
contain the usual required provisions permitting termination at any time for
the convenience of the government with payment for work completed and committed
along with associated profit at the time of termination.

The Company's contracts with the Department of Defense consist of fixed-price
contracts, cost-reimbursable contracts and incentive contracts of both types.
Fixed-price contracts provide fixed compensation for specified work.
Cost-reimbursable contracts require the Company to perform specified work in
return for reimbursement of costs (to the extent allowable under government
regulations) and a specified fee.  In general, while the risk of loss is
greater under fixed-price contracts than under cost-reimbursable contracts,
the potential for profit under such contracts is greater than under
cost-reimbursable contracts.  Under both fixed-price incentive contracts and
cost-reimbursable incentive contracts, an incentive adjustment is made in the
Company's fee based on attainment of performance, scheduling, cost, quality or
other goals.  The distribution of the Company's government contracts among the
categories of contracts referred to above varies from time to time, although in
recent years only a small percentage of the Company's contracts have been on a
cost-reimbursable or incentive basis.

COMPETITION AND OTHER FACTORS

Some of the Company's products are sold in markets containing a number of
competitors substantially larger than the Company and with greater financial
resources.  Direct sales of military products to U.S. and foreign governments
are based principally on product performance, cost and reliability.  Such
products are generally sold in competition with products of other manufacturers
that may fulfill an equivalent function, but which are not direct substitutes.

The Company purchases certain materials and components used in its systems and
equipment from independent suppliers.  These materials and components are
normally not purchased under long-term contracts unless the Company has
actually received a long-term sales contract requiring them.  The Company
believes that most of the items it purchases are obtainable from a variety of
suppliers and it normally obtains alternative sources for major items, although
the Company is sometimes dependent on a single supplier or a few suppliers for
some items.

It is difficult to state precisely the Company's market position in all of its
product lines because information as to the volume of sales of similar products
by its competitors is not generally available and the relevant markets are
often not precisely defined.  However, the Company believes that it is a
significant factor in the markets for stores release mechanisms for military
aircraft, military sonar systems, military data links, helicopter-towed mine
countermeasures systems, piezoelectric ceramics, and satellite attitude and
position sensors.

Although the Company owns some patents and has filed applications for
additional patents, it does not believe that its businesses depend
significantly upon its patents.  In addition, most of the Company's U.S.
Government contracts license it to use patents owned by others.  Similar
provisions in the U.S.  Government contracts awarded to other companies make it
impossible for the Company to prevent the use by other companies of its patents
in most domestic defense work.

                                    Page 5
<PAGE>

EMPLOYEES

As of December 31, 1998, the Company employed 776 persons.

                     EXECUTIVE OFFICERS OF THE REGISTRANT
==============================================================================
Name                Age     Position, Term of Office and Prior Positions
------------------------------------------------------------------------------

Frank A. Fariello    64     Chairman of the Board since 1997 and Chief
                            Executive Officer since 1994. He was President
                            from 1993 to 1998. Director since 1982.

William J. Frost     57     Vice President-Administration since 1994,
                            Assistant Secretary since 1995.

Marvin D. Genzer     58     Vice President since 1990, General Counsel since
                            1988, and Secretary since 1995.

Ira Kaplan           63     President since 1998 and Chief Operating Officer
                            since 1997, prior to which he was Executive Vice
                            President since 1997. He was Corporate Vice
                            President since 1995, and Vice President and
                            General Manager of the Government Systems
                            Division since 1989.

Kenneth A. Paladino  41     Vice President-Finance and Treasurer since 1995,
                            prior to which he was Controller since 1989.
==============================================================================

Each executive officer is appointed by the Board of Directors (the "Board"),
and holds office until the first meeting of the Board following the next
succeeding annual meeting of shareholders, and thereafter until a successor is
appointed and qualified, unless the executive officer dies, is disqualified,
resigns or is removed in accordance with the Company's By-Laws.

ITEM 2. PROPERTIES

All operating properties are leased facilities and the Company's facilities are
adequate for present purposes.  All facilities in the following listing are
suitable for expansion by using available but unused space, leasing additional
available space, or by physical expansion of leased buildings.  The Company's
obligations under the various leases are set forth in Note 17 on page 29 of
this Report.

Set forth below is a listing of the Company's principal plants and other
materially important physical properties.  All locations are used for the
Defense and Aerospace Systems segment, except the Shelton, CT facility, which
is used for the Satellite Products segment.
==============================================================================
                                      Location          Approximate Floor Area
                                                              (in sq. ft.)
------------------------------------------------------------------------------
Marine and Aircraft Systems          North Amityville, NY        85,000
Combat Systems                       Chesapeake, VA              30,000
Barnes                               Shelton, CT                 72,000
Electro-Ceramic Products             Salt Lake City, UT         117,000
Fiber Science                        Salt Lake City, UT         105,000
Technology Services and Analysis     Falls Church, VA            29,000
Specialty Plastics                   Baton Rouge, LA             29,000
==============================================================================

ITEM 3. LEGAL PROCEEDINGS

The information responsive to this item is set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 11 through 15, and in Note 18 on page 30 of this Report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                    Page 6
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The information responsive to this item is set forth under the headings "Common
Share Prices" on page 15 and "Dividends" on page 15, together with dividend
information contained in the "Consolidated Statements of Shareholders' Equity"
on page 18 and Note 9 on page 24 of this Report.

ITEM 6. SELECTED FINANCIAL DATA

The information responsive to this item is set forth under the heading
"Selected Financial Data" on page 10 of this Report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information responsive to this item is set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 11 through 15 of this Report.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The information responsive to this item is set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 11 through 15 of this Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company, together with the
Independent Auditors' Report thereon of KPMG LLP and the unaudited "Quarterly
Financial Information" are set forth on pages 16 through 32 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding directors is set forth under the headings "Election of
Directors" and "The Board of Directors and Its Committees" on pages 1 through
3, and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 10 of
the Company's Proxy Statement dated March 17, 1999, which is incorporated by
reference.

Information regarding executive officers is set forth in Part I of this Report
under "Executive Officers of the Registrant."

ITEM 11.  EXECUTIVE COMPENSATION

Information regarding compensation of the Company's executive officers is set
forth under the heading "Compensation of Executive Officers" on pages 5 through
9 of the Company's Proxy Statement dated March 17, 1999, which is incorporated
by reference, except for such information required by Item 402(k) and (l) of
Regulation S-K, which shall not be deemed to be filed as part of this Report.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership of certain beneficial owners and
management is set forth under the headings "Securities Ownership of Directors
and Executive Officers" on page 4 and "Principal Shareholders" on page 10 of
the Company's Proxy Statement dated March 17, 1999, which is incorporated by
reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

                                    Page 7
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements and Financial Statement Schedules and Exhibits

1. Financial Statements.

The consolidated financial statements as of December 31, 1998 and 1997 and for
the years ended December 31, 1998, 1997 and 1996, together with the report
thereon of KPMG LLP, independent auditors, dated February 12, 1999, appear on
pages 16 through 31 of this Report.

2. Financial Statement Schedules.

Schedules have been omitted either because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.

3. Exhibits.

Exhibits which are noted with an asterisk (*) are management contracts or
compensatory plans or arrangements.

3(i) Certificate of Incorporation of the Company and amendments thereto dated
June 14, 1984, July 18, 1988 and July 22, 1988 (incorporated by reference to
Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994), as further amended by amendment thereto dated July
29, 1998 (filed herewith).

3(ii) By-Laws of the Company.  Incorporated by reference to Exhibit 3(ii) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.

4(a) Loan Agreement, dated as of September 9, 1998, between Mellon Bank, NA,
et. al., and EDO Corporation.  Incorporated by reference to Exhibit 4(a) to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September
26, 1998.

4(b) Amendment No. 1 to the Loan Agreement referred to in Exhibit 4(a) above,
effective December 31, 1998.

4(c) Guarantee Agreement, dated as of July 22, 1988, restated as amended
through Amendment No. 13, effective December 31, 1998, made by the Company in
favor of Mellon Bank as successor in interest to Fleet Bank as successor in
interest to NatWest Bank and Manufacturers Hanover Trust Company.

10(a)* EDO Corporation 1996 Long-Term Incentive Plan.  Incorporated by
reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.

10(b)* EDO Corporation Executive Termination Agreements, as amended through
November 24, 1989, between the Company and three employees.  Incorporated by
reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.

10(c)* Executive Life Insurance Plan Agreements, as amended through January 23,
1990, between the Company and 30 employees and retirees.  Incorporated by
reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.

10(d)* Form of Directors' and Officers' Indemnification Agreements between EDO
Corporation and 14 current Company directors and officers.  Incorporated by
reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.

10(e) Consent Decree, entered on November 25, 1992, amongst the United States,
EDO Corporation, Plessey, Inc., Vernitron Corporation and Pitney Bowes, Inc.

10(f) EDO Corporation 1997 Non-Employee Director Stock Option Plan.
Incorporated by reference to Appendix A to the Company's Definitive Proxy
Statement dated March 21, 1997.

10(g) EDO Corporation Compensation Plan for Directors (filed herewith).

21 List of Subsidiaries.

23 Consent of Independent Auditors to the incorporation by reference in the
Company's Registration Statements on Form S-8 of their report included in Item
14(a)1 of this Annual Report on Form 10-K.

24 Powers of Attorney used in connection with the execution of this Annual
Report on Form 10-K.

27 Financial Data Schedule.

(b) Reports on Form 8-K

No reports on Form 8-K were required to be filed during the three months ended
December 31, 1998.

                                    Page 8
<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, its chief financial and accounting officer,
thereunto duly authorized.


                                                EDO CORPORATION (Registrant)
Dated: March 17, 1999                      By:  Kenneth A. Paladino
                                                -----------------------------
                                                Vice President-Finance

Pursuant to the requirements of Instruction D to Form 10-K under the Securities
Exchange Act of 1934, this Report has been signed below on March 17, 1999 by
the following persons on behalf of the Registrant and in the capacities
indicated.

Signature                   Title

Kenneth A. Paladino   Vice President-Finance
                        and Treasurer            __
Frank A. Fariello     Chairman of the Board,       |
                        Chief Executive Officer    |
                        and Director               |
William J. Frost      Vice President-              |
                        Administration             |
                        and Assistant Secretary    |
Marvin D. Genzer      Vice President, General      |
                        Counsel and Secretary      |- By: Kenneth A. Paladino
Ira Kaplan            President and                |     ---------------------
                        Chief Operating Officer    |        Attorney-in-Fact
Robert E. Allen       Director                     |
Robert Alvine         Director                     |
Mellon C. Baird       Director                     |
George M. Ball        Director                     |
Joseph F. Engelberger Director                     |
Robert M. Hanisee     Director                     |
Michael J. Hegarty    Director                     |
James M. Smith        Director                     |
George A. Strutz, Jr. Director                   __|

                                    Page 9
<PAGE>

SELECTED FINANCIAL DATA
EDO CORPORATION AND SUBSIDIARIES
(Not Covered by Independent Auditors' Report)
===============================================================================
                              1998       1997       1996       1995       1994
                                  (in thousands, except per share amounts)
-------------------------------------------------------------------------------
Summary of Operations
Net sales
 Defense and
 Aerospace Systems        $ 81,403     73,708     68,716     63,842     69,777
 Satellite Products         14,657     20,654     25,870     15,090     11,479
-------------------------------------------------------------------------------
 Total                      96,060     94,362     94,586     78,932     81,256
===============================================================================
Operating earnings (loss)
 Defense and
  Aerospace Systems         10,315      6,164      8,711      6,990     (1,879)
 Satellite Products         (3,056)    (1,528)    (1,931)    (1,625)   (12,704)
 Litigation settlement
  income                     2,200      2,900          -          -          -
 Write-off of
  anticipated
  environmental
  recovery                       -          -          -          -     (5,400)
 Restructuring charge            -          -          -          -     (1,127)
 Postretirement health
  care curtailment gain          -          -      7,120          -          -
-------------------------------------------------------------------------------
 Operating earnings (loss)   9,459      7,536     13,900      5,365    (21,110)
-------------------------------------------------------------------------------
Net interest expense          (428)      (459)      (766)    (1,199)    (2,160)
Other (expense)
 income, net                  (100)       (50)       (66)       (41)       335
-------------------------------------------------------------------------------
Earnings (loss) before
 Federal income taxes        8,931      7,027     13,068      4,125    (22,935)
Provision (benefit)
 for Federal income taxes      700          -          -          -     (3,800)
===============================================================================
Earnings (loss) from:
 Continuing operations       8,231      7,027     13,068      4,125    (19,135)
 Discontinued operations         -          -     (8,637)    (1,465)    (3,421)
===============================================================================
Net earnings (loss)          8,231      7,027      4,431      2,660    (22,556)
Dividends on preferred
 shares(a)                   1,063      1,127      1,179      1,239      1,333
-------------------------------------------------------------------------------
Net earnings (loss)
 available for
 common shares            $  7,168      5,900      3,252      1,421    (23,889)
===============================================================================
Per Common Share Data
 Basic net earnings
  (loss)
   Continuing
    operations            $   1.09       0.94       1.99       0.50      (3.69)
Discontinued
 operations               $      -          -      (1.45)     (0.25)     (0.61)
-------------------------------------------------------------------------------
 Total                    $   1.09       0.94       0.54       0.25      (4.30)
Diluted net
 earnings (loss)          $   0.94       0.81       0.46       0.20      (4.30)
Cash dividends per
 common share             $   0.115      0.10          -          -       0.14
Other Information
Working capital           $ 40,718     44,477     37,382     33,582     31,374
Depreciation and
 amortization of
  fixed assets            $  3,871      4,186      3,471      4,568      5,677
Plant and equipment
 expenditures             $  3,621      4,083      4,227      1,800      1,731
Total assets              $126,753    108,801     94,223     95,526     94,747
Long-term debt            $ 28,000     29,317     29,317     29,317     29,317
ESOT loan obligation      $  8,955     10,368     11,676     12,887     14,007
Shareholders' equity      $ 38,051     28,135     19,823     14,997     11,610
Backlog of
 unfilled orders          $151,800    111,557    102,981     85,558     70,682
===============================================================================
(a) ESOP Convertible Cumulative Preferred Shares, Series A (hereinafter
referred to as "preferred shares")

                                    Page 10
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BUSINESS

The Company conducts its business in two segments:  Defense and Aerospace
Systems; and Satellite Products.  The Defense and Aerospace Systems segment
represents 85% of the Company's sales and includes the military and advanced
material products.  The Satellite Products segment represents 15% of the
Company's sales and includes satellite and other space products.

RESULTS OF OPERATIONS - 1998 COMPARED TO 1997

Net sales for 1998 were $96.1 million compared to net sales of $94.4 million in
1997, an increase of 2%.  Sales in the Defense and Aerospace Systems segment
increased 10% to $81.4 million as a result of increased sales of mine
countermeasures, command and control and sonar systems and five months of sales
of the newly acquired technical services business.  These increases and
additional sales were partially offset by lower sales in the Satellite Products
segment, which decreased from $20.7 million to $14.7 million primarily due to
delays in the receipt of orders.  These orders have subsequently been received
and are included in the 1998 year-end backlog.

Total operating earnings for 1998 increased to $9.5 million, an increase of
$2.0 million or 27% over the $7.5 million recorded in 1997.  This increase
resulted from a favorable mix of higher margin programs and an increase in
pension income of approximately $1.0 million.

In 1998 and 1997 operating earnings include income from litigation settlements
of $2.2 million and $2.9 million, respectively.  The settlements occurred in
the respective fourth quarters and related to an environmental matter that is
more fully explained in Note 18 to the Consolidated Financial Statements.  The
fourth quarter results include a Satellite Products segment loss of $2.1
million in 1998, discussed below, and in 1997, product line discontinuance
charges of $2.0 million in the Defense and Aerospace Systems segment and $0.6
million in the Satellite Products segment.

Operating earnings in the Defense and Aerospace Systems segment in 1998 were
$10.3 million, an increase of 66% compared to operating earnings of $6.2
million in 1997.  The 1997 operating earnings include a $2.0 million charge
related to the discontinuance of certain acoustic instrument products.

An operating loss of $3.1 million was recorded in the Satellite Products
segment in 1998 compared to an operating loss of $1.5 million in 1997.  The
1998 operating loss occurred substantially in the fourth quarter, where a loss
of $2.1 million was recorded, primarily as a result of a technical problem on a
fixed price program that has since been resolved.  In addition to this
technical problem, the Satellite Products segment experienced a 29% reduction
in sales in 1998 due to the previously mentioned delayed orders and the
resulting unabsorbed overhead.  As a result of expense reductions and the
eventual receipt of the previously mentioned delayed orders, the Satellite
Products segment is expected to be profitable in the first quarter of 1999.
The 1997 loss in the Satellite Products segment included a $0.6 million charge
as a result of the discontinuance of a microscope product line.

Selling, general and administrative expenses in 1998 were $15.3 million
compared to $13.8 million in 1997.  This increase resulted primarily from the
inclusion of the expenses of EDO Technology Services and Analysis, which was
acquired in July 1998 (Note 2) and increased expenditures related to business
development activities.

Company-funded research and development increased by 67% to $3.5 million
compared to $2.1 million in 1997.  This increase is consistent with the
Company's strategy of increased investment in product development.
Customer-sponsored research and development was $22.4 million in 1998 compared
to $23.0 million in 1997.  Customer-sponsored research and development is
included in cost of sales and represents the engineering development portion of
programs where new products are being developed or technologies are being
advanced.

Interest expense, net of interest income, was $0.4 million in 1998 and $0.5
million in 1997.  Interest expense primarily represents the interest accrued on
the 7% Convertible Subordinated Debentures Due 2011.

In the fourth quarter of 1998 the Company began recording a provision for
Federal income taxes as it fully recognized the benefit associated with its tax
net operating loss carryforward.  The Company expects to record a higher
Federal income tax effective rate commencing in the first quarter of 1999.

Net earnings available for common shares in 1998 were $7.2 million compared to
$5.9 million in

                                    Page 11
<PAGE>

1997.  Basic net earnings per share were $1.09 in 1998 compared
to $0.94 in 1997.  Basic net earnings per share calculations are based on a
weighted average of 6.5 million and 6.3 million common shares outstanding in
1998 and 1997, respectively.  Diluted net earnings per share were $0.94 in 1998
as compared to $0.81 in 1997.

FINANCIAL CONDITION

The Company's cash, cash equivalents and marketable securities decreased by
$0.9 million in 1998 to $33.3 million compared to $34.2 million in 1997.  The
net decrease results from cash flow from operations of $9.2 million offset
primarily by purchases of capital equipment of $3.6 million, outlays for
acquisitions of $5.6 million and payments of preferred and common dividends of
$1.8 million.  Cash flow from operations in 1998 was $8.4 million lower than
the $17.6 million received in 1997 primarily as a result of increases in
accounts receivable and inventories as well as a reduction in the amount of net
contract advances received.

Consistent with the Company's strategic plans to grow the Company by adding to
its core capabilities, three acquisitions were made during 1998.  In July 1998,
the Company acquired substantially all of the assets of the Technology Services
Group of Global Associates, Ltd., now operating as EDO Technology Services and
Analysis (EDO TSA), for $4.2 million in cash.  EDO TSA provides technical
services to various agencies of the U.S.  Department of Defense and is expected
to enhance the Company's ability to offer forward-looking integrated combat
system products to U.S. and international customers.  For the five months the
Company owned EDO TSA it recorded sales of $3.4 million, and was accretive to
earnings.

In December 1998, the Company acquired all of the stock of Specialty Plastics,
Inc., now operating as EDO Specialty Plastics, for a $5.4 million note, due
January 1999.  EDO Specialty Plastics manufactures and installs lightweight
fiber composite pipe for use on offshore, deep-water oil production platforms.
EDO Specialty Plastics is expected to expand and diversify the addressable
market for EDO's fiber composite products.  The Company expects EDO Specialty
Plastics to be accretive to earnings in 1999.

In December 1998, the Company acquired the assets of Zenix Products Inc.
(Zenix) for approximately $0.7 million.  Zenix manufactures ferrite and
dielectric ceramics for the wireless communications base station industry.

In February 1999 the Company announced that it had retained an investment
banking firm to evaluate strategic alternatives regarding its Satellite
Products segment to determine how it best fits with the Company's long-term
growth plan.  The alternatives include the possible sale of this business.

The Company has outstanding $29.3 million of 7% Convertible Subordinated
Debentures Due 2011 (the Debentures).  Commencing in 1996 and until the
retirement of these debentures, the Company is making annual sinking fund
payments of $1.75 million.  As of December 31, 1998 the Company had $0.4
million of these debentures remaining in treasury, which will be used toward a
portion of the 1999 payment.  The Company has classified the balance of the
1999 installment, or $1.3 million, as a current obligation.

The Company has an ESOT loan obligation with a balance at December 31, 1998 of
$9.0 million at an interest rate of 82% of the prime lending rate.  The
repayment of this obligation is funded through dividends on the Company's
preferred shares and cash contributions.  The obligation is scheduled to be
repaid in 2003.

In 1998, the Company established a new $30.0 million secured multi-year
revolving credit facility through a syndicate of banks, which replaced the
Company's previous $15.0 million secured line of credit.  This larger facility
was established to be available for acquisitions as well as for standby letters
of credit, which are often required by international customers when the Company
receives contract advances.  As of December 31, 1998 there were approximately
$15.2 million of standby letters of credit outstanding, and there have not
been any direct borrowings.

The Company has contracts to provide sonar equipment to the Brazilian
government and the Brazilian Navy.  The contracts are denominated in U.S.
dollars and have an aggregate value of $25 million.  The Brazilian Real/U.S.
Dollar exchange rate has increased significantly during the life of these
contracts and, while the Brazilian customers have met their payment and other
obligations under the contracts to date and have not given the Company any
reason to believe that they will not continue to meet their obligations, there
can be no assurance that the financial situation in Brazil will not adversely
affect the Company's timely realization of the full benefits of these
contracts.

The Company is incurring costs in connection with the remediation of a
Superfund site (noted above and more fully explained in Note 18 to the
Consolidated Financial Statements).  The Company has expensed all of the costs
it has incurred, as well as a discounted estimate of all future costs related
to this matter.  The liability for these future costs as of December 31, 1998
is approximately $3.0 million of which $0.5 million is classified as a current
liability.  Approximately

                                    Page 12
<PAGE>

38% of this liability will be expended over the next five years.

The Company believes that it has adequate liquidity and sufficient capital to
fund its current operating plans.

Backlog increased to $151.8 million at December 31, 1998 from $111.6 million at
December 31, 1997.

RESULTS OF OPERATIONS - 1997 COMPARED TO 1996

Net sales for 1997 were $94.4 million compared to $94.6 million in 1996.  The
increase of $5.0 million in the Defense and Aerospace Systems segment,
attributable primarily to mine countermeasures and sonar systems, was offset by
the decrease of $5.2 million in the Satellite Products segment.

Total operating earnings in 1997 improved 11% to $7.5 million compared to $6.8
million in 1996, excluding the effect of a $7.1 million non-cash curtailment
gain from the discontinuance of medical benefits for Medicare eligible retirees
in 1996.  Operating earnings in 1997 in the Defense and Aerospace Systems
segment decreased by $2.5 million and included a charge of $2.0 million
associated with the discontinuance of certain acoustic product lines, as
discussed in Note 3 to the Consolidated Financial Statements.  The operating
loss in 1997 in the Satellite Products segment included a charge of $0.6
million associated with the discontinuance of a microscope product line.  These
charges were offset by income from a litigation settlement of $2.9 million
related to an environmental matter (see Note 18 to the Consolidated Financial
Statements).

Selling, general and administrative expenses in 1997 decreased to $13.8 million
from $15.6 million in 1996, primarily as a result of the decrease in sales in
the Satellite Products segment and the discontinuance of the microscope product
line noted above.  Company-funded research and development expenditures doubled
in 1997 to $2.1 million from $1.0 million in 1996, consistent with the
Company's strategy of increased investment in product development.
Customer-sponsored research and development, which is included in cost of
sales, increased $5.2 million to $23.0 million in 1997.

Interest expense, net of interest income, was $0.5 million in 1997 compared to
$0.8 million in 1996 due to increased interest income on higher average
balances of interest-earning assets.  Interest expense consisted primarily of
the interest accrued on the 7% Convertible Subordinated Debentures Due 2011.

In 1997 and 1996, the Company did not have a provision for Federal income taxes
due to the utilization of tax loss carryforwards.

Net earnings available for common shares in 1997 were $5.9 million compared to
$3.3 million in 1996.  Net earnings in 1996 included a $7.0 million loss from
the discontinuance of the Company's energy-related business (see Note 4 to the
Consolidated Financial Statements) and, as noted above, a $7.1 million
curtailment gain.  Basic net earnings per share were $0.94 in 1997 and $0.54 in
1996, based on weighted average common shares outstanding of 6.3 million and
6.0 million, respectively.  Diluted net earnings per share were $0.81 in 1997
and $0.46 in 1996.

MARKET RISKS

The Company's outstanding indebtedness as of December 31, 1998 is comprised of
the Debentures and the ESOT loan obligation, as discussed above.  The
Debentures bear interest at a fixed rate and the interest on the ESOT loan
obligation fluctuates with the prime lending rate.  The Company does not
believe it has a material exposure to fluctuations in interest rates.
Additionally, the Company does not believe it has a material exposure to
fluctuations in foreign currencies since substantially all contracts with
foreign customers are denominated in U.S. dollars.  In limited instances where
supply contracts are not denominated in U.S. dollars, the Company has the
corresponding portion of the contract from its foreign customer denominated in
the currency of its supplier.

NEW ACCOUNTING STANDARD

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.  This statement requires companies to
record derivatives on the balance sheet as assets or liabilities at their fair
value.  In certain circumstances, changes in the value of such derivatives may
be required to be recorded as gains or losses.  Management believes that the
impact of this statement will not have a material effect on the Company's
consolidated financial statements.

                                    Page 13
<PAGE>

YEAR 2000

The year 2000 issue ("Y2K") affects computer systems having date-sensitive
programs that may not properly recognize the year 2000.  Y2K is reputed to be
able to cause computers and computer controlled equipment to cease functioning.

The Company has conducted several informal Y2K reviews over the last two years
of its products and internal systems.  Based on these reviews, the only area
where the Company has noted that Y2K could materially affect the Company's
operations or products is that failures or miscalculations could be caused in
the computerized accounting programs provided by outside vendors and used at
the Company.  The applicable vendors have provided modifications to their
programs to deal with Y2K and these modifications are currently being tested.
Initial testing has shown these modifications to be mostly effective.  If these
modifications do not eventually prove entirely successful, the Company would be
required to seek other methods to process its accounting information.

The Company's formal Y2K program was established in 1998 to ensure that the
Company's initial conclusions were correct.  The program is conducted under the
direction of its Vice President & General Counsel and the oversight of the
Audit Committee of the Board of Directors.  The Y2K "Committee" consists of a
Y2K coordinator from each operating location and has met once to date.  The
Committee will meet formally five times, or more if necessary, over the next 10
months to review plans and to share results of each of the Committee member's
efforts.

The Company's Y2K program addresses Y2K from four perspectives:

  the Company looks at the products and services it sells to determine whether
  Y2K will impact their performance;

  the Company looks at the materials, products and services it buys to
  determine whether the suppliers of such materials, products and services or
  the materials, products or services themselves will be impacted by Y2K in
  such a way as to adversely impact the Company's operations;

  the Company looks at its interfaces with its customers and suppliers to
  determine whether Y2K will adversely affect such interfaces; and

  the Company reviews its internal operations, including engineering,
  manufacturing, finance and administrative (office and facilities equipment,
  general purpose computers and related systems) to determine whether Y2K will
  adversely affect any of these functions.

The formalized Y2K program will encompass three phases:

  Phase 1 will establish a baseline of Y2K compliance by a thorough review and
  audit of each of the above four perspectives and determine readiness by
  analysis and/or actual testing as necessary.  This phase has been in process
  and is expected to be completed in March 1999.

  Phase 2 will determine a budget and actions necessary to bring into
  compliance any areas determined to be either deficient, potentially deficient
  or in an indeterminable state and a schedule for implementation completion.
  This phase is expected to be completed in June 1999.

  Phase 3 will verify by analysis and actual test that any material Y2K issues
  have been corrected and that all systems are Y2K compliant.  This phase will
  be completed by the third quarter of 1999.  Contingency plans will also be
  established at that time.

The costs of the above Y2K program are being expensed as incurred and to date
have been minor.  Based upon the Company's review over the last two years and
its findings to date, the Company does not believe that any other costs
associated with Y2K will be material.  To date, the total cost associated with
the above Y2K program and required modifications and conversions, if any, have
not been completely determined, although they are not presently expected by the
Company to be material to its consolidated financial position, results of
operations or liquidity.  However, if the modifications to accounting programs
provided by outside vendors do not prove entirely successful, the cost of
replacing these programs could have a material adverse effect.  The Company
presently expects that any necessary remedial costs will be likewise expensed.

As part of the Company's Y2K program, the Company is currently seeking
information regarding Y2K compliance from vendors, customers, manufacturers and
financial institutions associated with the Company.  However, given the
reliance on third party information as it relates to their compliance programs,
no assurance can be given that the Company's information systems or operations
will not be affected by third-party failures to complete their Y2K projects on
a timely basis.

                                    Page 14
<PAGE>

COMMON SHARE PRICES

EDO common shares are traded on the New York Stock Exchange.  As of February 1,
1999, there were 2,352 shareholders of record (brokers and nominees counted as
one each).

The price range in 1998 and 1997 was as follows:
     ===================================================================
                                  1998                         1997
                             High       Low               High       Low
     -------------------------------------------------------------------
     1st Quarter            9-5/8     8-1/16             7-7/8     6-3/8
     2nd Quarter            9-3/4     8-1/2              8-15/16   6-3/8
     3rd Quarter           10-7/8     6-11/16           10-3/4     7-5/8
     4th Quarter            8-3/4     6-3/4             10-5/8     8-1/4
     ===================================================================

DIVIDENDS

During 1998, the Board of Directors approved the payment of cash dividends of
$0.025 per common share in the first quarter and $0.03 per share in the second,
third and fourth quarters.  During 1997, the Board of Directors approved the
payment of quarterly cash dividends of $0.025 per common share.  The Company's
revolving credit agreement places certain limits on the payment of cash
dividends.  See Note 9 to the Consolidated Financial Statements.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

The statements in this Annual Report on Form 10-K and in the message to
shareholders contained in the Annual Report to Shareholders for 1998 relating
to plans, strategies, economic performance and trends and other statements that
are not descriptions of historical facts may be forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
Section 27(a) of the Securities Act of 1933 and Section 21(e) of the Securities
Exchange Act of 1934.  Forward-looking statements are inherently subject to
risks and uncertainties, and actual results could differ materially from those
currently anticipated due to a number of factors, which include, but are not
limited to, the following for each of the types of information as noted below.

U.S. and international military program sales, follow-on procurement, contract
continuance, and future program awards, upgrades and spares support are subject
to:  U.S. and international military budget constraints and determinations;
U.S. congressional and international legislative body discretion; U.S. and
international government administration policies and priorities; changing world
military threats, strategies and missions; competition from foreign
manufacturers of platforms and equipment; NATO country determinations regarding
participation in common programs; changes in U.S. and international government
procurement timing, strategies and practices; and the general state of world
military readiness and deployment.

Commercial satellite programs and equipment sales, follow-on procurement,
contract continuance and future program awards are subject to:  establishment
and continuance of various consortiums for satellite constellation programs;
delay in launch dates due to equipment, weather or other factors beyond the
control of the Company; and development of sufficient customer base to support
a particular satellite constellation program.

Other commercial product sales are subject to:  success of product development
programs currently underway or planned; competitiveness of current and future
product production costs and prices; and market and consumer base development
for new product programs.

Achievement of margins on sales, earnings and cash flow can be affected by:
unanticipated technical problems; government termination of contracts for
convenience; decline in expected levels of revenues; underestimation of
anticipated costs on specific programs; risks inherent in integrating recent
acquisitions into the Company's overall structure; and risks associated with
year 2000 compliance by the Company, its customers, suppliers and other third
parties.  Expectations of future Federal income tax rates can be affected by a
variety of factors, including amounts of profits relating to foreign sales.

The Company has no obligation to update any forward-looking statements.

                                    Page 15
<PAGE>

CONSOLIDATED STATEMENTS OF EARNINGS
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
                                                        December 31
                                              1998          1997          1996
                                       (in thousands, except per share amounts)
-------------------------------------------------------------------------------
Continuing Operations:
 Income
  Net sales                             $   96,060    $   94,362    $   94,586
  Other                                          -           119           388
-------------------------------------------------------------------------------
                                            96,060        94,481        94,974
-------------------------------------------------------------------------------
 Costs and Expenses
  Cost of sales (including a $2,000
   charge for the discontinuance of
   a product line in 1997)                  69,940        73,981        71,561
  Selling, general and administrative       15,344        13,785        15,631
  Research and development                   3,517         2,079         1,002
  Litigation settlement income              (2,200)       (2,900)            -
  Postretirement health care
   curtailment gain                              -             -        (7,120)
-------------------------------------------------------------------------------
                                            86,601        86,945        81,074
-------------------------------------------------------------------------------
 Operating Earnings                          9,459         7,536        13,900
 Non-operating Income (Expense)
  Interest income                            1,893         1,838         1,427
  Interest expense                          (2,321)       (2,297)       (2,193)
  Other, net                                  (100)          (50)          (66)
-------------------------------------------------------------------------------
                                              (528)         (509)         (832)
-------------------------------------------------------------------------------
 Earnings before Federal income taxes        8,931         7,027         13,068
 Federal income tax expense                    700             -              -
-------------------------------------------------------------------------------
 Earnings from Continuing Operations         8,231         7,027         13,068

Discontinued Operations:
 Loss from operations of discontinued
  energy business                                -             -        (1,637)
 Loss from discontinuance, including
  provision of $2,000 for operating
  losses during phase out period                 -             -        (7,000)
-------------------------------------------------------------------------------
 Loss from Discontinued Operations               -             -        (8,637)
-------------------------------------------------------------------------------
Net Earnings                                 8,231         7,027         4,431
Dividends on preferred shares                1,063         1,127         1,179
-------------------------------------------------------------------------------
Net Earnings Available
 for Common Shares                      $    7,168    $    5,900    $    3,252
===============================================================================

Earnings (Loss) Per Common Share:
 Basic:
  Continuing operations                 $     1.09    $     0.94     $    1.99
  Discontinued operations                        -             -         (1.45)
-------------------------------------------------------------------------------
Net Earnings                            $     1.09    $     0.94     $    0.54
===============================================================================
 Diluted:
  Continuing operations                 $     0.94    $     0.81     $    1.67
  Discontinued operations                        -             -         (1.21)
-------------------------------------------------------------------------------
Net Earnings                            $     0.94    $     0.81     $    0.46
===============================================================================
See accompanying Notes to Consolidated Financial Statements.

                                    Page 16
<PAGE>

CONSOLIDATED BALANCE SHEETS
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
                                                             December 31
                                                          1998          1997
                                                    (in thousands, except share
                                                       and per share amounts)
-------------------------------------------------------------------------------
Assets
Current assets:
 Cash and cash equivalents                            $   21,801    $   20,351
 Marketable securities                                    11,519        13,851
 Accounts receivable                                      39,853        32,421
 Inventories                                               9,830         6,816
 Deferred tax asset, net                                   1,280             -
 Prepayments and other                                     2,177         5,564
-------------------------------------------------------------------------------
     Total current assets                                 86,460        79,003
-------------------------------------------------------------------------------
Property, plant and equipment, net                        13,964        12,865
Notes receivable                                           2,300         3,000
Cost in excess of fair value of net
 assets acquired, net                                     11,736         6,792
Other assets                                              12,293         7,141
-------------------------------------------------------------------------------
                                                      $  126,753    $  108,801
===============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
 Accounts payable and accrued liabilities             $   24,427    $   21,773
 Contract advances and deposits                           14,538        12,753
 Note payable                                              5,460             -
 Current portion of long-term debt                         1,317             -
-------------------------------------------------------------------------------
     Total current liabilities                            45,742        34,526
-------------------------------------------------------------------------------
Long-term debt                                            28,000        29,317
ESOT loan obligation                                       8,955        10,368
Postretirement obligation                                  3,443         3,526
Environmental obligation                                   2,562         2,929
Shareholders' Equity:
 Preferred shares, par value $1 per share
  (liquidation preference $213.71 per share
  or $12,960 in the aggregate in 1998),
  authorized 500,000 shares, 60,641 issued
  in 1998 and 64,843 in 1997                                  61            65
 Common shares, par value $1 per share,
  authorized 25,000,000 shares, 8,453,902
  issued in both years                                     8,454         8,454
Additional paid-in capital                                30,142        32,546
Retained earnings                                         35,294        27,641
-------------------------------------------------------------------------------
                                                          73,951        68,706
Less:   Treasury shares at cost (1,821,634
         shares in 1998 and 2,054,474 shares
         in 1997)                                        (25,775)      (29,201)
        ESOT loan obligation                              (8,955)      (10,368)
        Deferred compensation under Long-Term
         Incentive Plan                                   (1,170)       (1,002)
-------------------------------------------------------------------------------
     Total shareholders' equity                           38,051        28,135
-------------------------------------------------------------------------------
                                                      $  126,753    $  108,801
===============================================================================
See accompanying Notes to Consolidated Financial Statements.

                                    Page 17
<PAGE>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
                                    1998             1997             1996
                                                (in thousands)
                               Amount  Shares   Amount  Shares   Amount  Shares
-------------------------------------------------------------------------------
Preferred shares
 Balance at beginning
  of year                    $    65      65  $    68      68  $    71      71
 Shares converted
  to common shares                (4)     (4)      (3)     (3)      (3)     (3)
-------------------------------------------------------------------------------
 Balance at end of year           61      61       65      65       68      68
-------------------------------------------------------------------------------
Common shares
-------------------------------------------------------------------------------
 Par value of shares issued    8,454   8,454    8,454   8,454    8,454   8,454
-------------------------------------------------------------------------------
Additional paid-in capital
 Balance at beginning
   of year                    32,546           35,438           37,847
 Exercise of stock
   options                      (645)          (1,132)            (227)
 Shares used for payment
   of directors' fees            (71)             (64)             (57)
 Shares used for Long-
   Term Incentive Plans         (369)            (721)          (1,146)
 Conversion of preferred
   shares to common shares    (1,319)            (975)            (979)
-------------------------------------------------------------------------------
 Balance at end of year       30,142           32,546           35,438
-------------------------------------------------------------------------------
Retained earnings
 Balance at beginning
   of year                    27,641           22,368           19,116
 Net earnings                  8,231            7,027            4,431
 Common share dividends
   (11.5 cents and 10 cents
   per share in 1998 and
   1997, respectively)          (755)            (627)               -
 Dividends on
   preferred shares           (1,063)          (1,127)          (1,179)
 Tax benefit of
   unallocated preferred
   share dividends             1,240                -                -
-------------------------------------------------------------------------------
 Balance at end of year       35,294           27,641           22,368
-------------------------------------------------------------------------------
Treasury shares at cost
 Balance at beginning
   of year                   (29,201) (2,054) (34,240) (2,409) (37,604) (2,646)
 Shares used for exercise
   of stock options              998      62    2,491     175      393      28
 Shares used for payment
   of directors' fees            167      11      149      11      106       7
 Shares used for Long-
   Term Incentive Plans          938      66    1,421     100    1,883     133
 Shares used for
   conversion of preferred
   shares                      1,323      93      978      69      982      69
-------------------------------------------------------------------------------
 Balance at end of year      (25,775) (1,822) (29,201) (2,054) (34,240) (2,409)
-------------------------------------------------------------------------------
ESOT loan obligation
 Balance at beginning
   of year                   (10,368)         (11,676)         (12,887)
 Repayments made
   during year                 1,413            1,308            1,211
-------------------------------------------------------------------------------
 Balance at end of year       (8,955)         (10,368)         (11,676)
-------------------------------------------------------------------------------
Deferred compensation
  under Long-Term
  Incentive Plan
 Balance at beginning
   of year                    (1,002)            (589)               -
 Shares used for Long-
   Term Incentive Plans         (569)            (700)            (737)
 Amortization of Long-
   Term Incentive Plan
   deferred expense              401              287              148
-------------------------------------------------------------------------------
 Balance at end of year       (1,170)          (1,002)            (589)
-------------------------------------------------------------------------------
Total Shareholders' Equity   $38,051          $28,135          $19,823
===============================================================================
See accompanying Notes to Consolidated Financial Statements.

                                    Page 18
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
EDO CORPORATION AND SUBSIDIARIES
===============================================================================
                                                  Years Ended December 31
                                              1998          1997          1996
                                                       (in thousands)
-------------------------------------------------------------------------------
Operating Activities:
 Earnings from continuing operations    $    8,231    $    7,027    $   13,068
 Adjustments to earnings to arrive
   at cash provided by continuing
   operations:
  Postretirement health care
    curtailment gain                             -             -        (7,120)
  Depreciation and amortization              4,574         6,027         5,303
  Write-down of acoustic product
    line inventory                               -         1,500             -
  Deferred compensation expense                401           287           148
  Common shares issued for
    directors' fees                             96            85            49
  Changes in operating assets and
    liabilities, excluding effects
    of acquisitions:
   Accounts receivable                      (3,862)           97        (8,913)
   Inventories                              (2,791)         (322)           93
   Prepayments, other
     assets and other                        1,299        (5,279)       (4,341)
   Accounts payable and accrued
     liabilities                              (556)          256         5,178
   Contract advances and deposits            1,785         7,944          (833)
-------------------------------------------------------------------------------
Cash provided by continuing
 operations                                  9,177        17,622         2,632
Net cash used by discontinued
 operations                                      -             -        (1,804)
Investing Activities:
 Purchase of property, plant
   and equipment                            (3,621)       (4,083)       (4,227)
 Cash paid for acquisitions,
   net of cash acquired                     (5,648)            -             -
 Sale (purchase) of marketable
   securities                                2,332       (13,851)            -
 Proceeds from assets held
   for sale                                      -             -         1,976
-------------------------------------------------------------------------------
Cash used by investing activities           (6,937)      (17,934)       (2,251)
Financing Activities:
 Proceeds from exercise
   of stock options                            353         1,359           166
 Payments received on
   notes receivable                            675           313           263
 Payment of common share
   cash dividends                             (755)         (627)            -
 Payment of preferred share
   cash dividends                           (1,063)       (1,127)       (1,179)
-------------------------------------------------------------------------------
Cash used by financing activities             (790)          (82)         (750)
===============================================================================
Net increase (decrease)
  in cash and cash equivalents                1,450         (394)       (2,173)
Cash and cash equivalents
  at beginning of year                       20,351       20,745        22,918
-------------------------------------------------------------------------------
Cash and cash equivalents
  at end of year                        $    21,801   $   20,351    $   20,745
===============================================================================
Supplemental disclosures:
 Cash paid for:
  Interest                              $     2,052   $    2,058    $    2,072
  Income taxes                          $     1,386   $    1,137    $      190
===============================================================================
See accompanying Notes to Consolidated Financial Statements.

                                    Page 19
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
EDO CORPORATION AND SUBSIDIARIES

(1) Summary of Significant Accounting Policies

(a) Principles of Consolidation and Business

The consolidated financial statements include the accounts of EDO Corporation
and all wholly-owned subsidiaries (the "Company").  All significant
intercompany accounts and transactions have been eliminated in consolidation.

The Company operates in two segments, Defense and Aerospace Systems and
Satellite Products (Note 19).  The Company discontinued its energy-related
business in 1996 (Note 4).

(b) Cash Equivalents

The Company considers all securities with an original maturity of three months
or less at the date of acquisition to be cash equivalents.

(c) Marketable Securities

The Company's marketable securities, consisting of U.S. government-backed
securities, mortgage-backed securities and corporate bonds, are categorized as
available-for-sale.  The securities have been reflected at cost, which
approximates market value at December 31, 1998 and 1997.

(d) Revenue Recognition

Sales under long-term, fixed-price contracts, including pro-rata profits, are
generally recorded based on the relationship of costs incurred to date to total
projected final costs or, alternatively, as deliveries are made or services are
provided.  Estimated losses on long-term contracts are recorded when
identified.  Sales under cost reimbursement contracts are recorded as costs are
incurred.  Sales on other than long-term contract orders (principally
commercial products) are recorded as shipments are made.

(e) Inventories

Inventories under long-term contracts and programs reflect all accumulated
production costs, including factory overhead, initial tooling and other related
costs (including general and administrative expenses relating to certain of the
Company's defense contracts), less the portion of such costs charged to cost of
sales.  Inventory costs in excess of amounts recoverable under contracts are
charged to cost of sales when they become known.  All other inventories are
stated at the lower of cost (principally first-in, first-out method) or
market.

(f) Depreciation and Amortization

Depreciation and amortization of property, plant and equipment have been
provided primarily using the straight-line method over the estimated useful
lives of the assets.  Leasehold improvements are amortized over the shorter of
their estimated useful lives or their respective lease periods.

Deferred financing costs are amortized on a straight-line basis over the life
of the related financing.  The unamortized balances of $1,382,000 and
$1,012,000 are included in other assets at December 31, 1998 and 1997,
respectively.

(g) Cost in Excess of Fair Value of Net Assets Acquired (Goodwill)

The excess of the total acquisition costs over the fair value of net assets
acquired of approximately $16.4 million ($11.7 million, net of accumulated
amortization at December 31, 1998) is being amortized on a straight-line basis
over fifteen to thirty years.  The Company assesses the recoverability of
unamortized goodwill by determining whether the amortization of the goodwill
balance over its estimated life can be recovered through the undiscounted
projected future cash flows of the acquired business.

(h) Long-Lived Assets

The Company reviews long-lived assets to be held and used or disposed of for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable when measured by comparing
the carrying amount of an asset to the future net cash flows expected to be
generated by the asset.

                                    Page 20
<PAGE>

(i) Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be realized or settled.  The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

(j) Treasury Shares

Common shares held as treasury shares are recorded at cost, with issuances from
treasury recorded at average cost.  Treasury shares issued for directors' fees
are recorded as an expense for an amount equal to the fair market value of the
common shares on the issuance date.

(k) Earnings Per Share

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share,"
which the Company adopted in the fourth quarter of 1997.  Under SFAS No. 128,
the Company presents basic and diluted earnings per share (Note 13).

(l) Financial Instruments

The fair value and book value of the Company's 7% Convertible Subordinated
Debentures Due 2011 and ESOT obligation at December 31, 1998 were $34,167,000
and $38,272,000, respectively (Notes 9 and 10), and at December 31, 1997 were
$35,368,000 and $39,685,000, respectively.  The net carrying value of notes
receivable approximates fair value based on current rates for comparable
commercial mortgages.  The fair value of the environmental obligation (Note 18)
approximates its carrying value since it has been discounted.

The fair values of all other financial instruments approximate book values
because of the short-term maturities of these instruments.

(m) Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.  Among
the more significant estimates included in these consolidated financial
statements are the estimated costs to complete contracts in process, the
estimated remediation costs related to the environmental matter discussed in
Note 18 and the collectibility of receivables.  Actual results could differ
from these and other estimates.

(n)   Accounting for Stock-Based Compensation

The Company records compensation expense for employee stock options and
warrants only if the current market price of the underlying stock exceeds the
exercise price on the date of the grant.  The Company has elected not to
implement the fair value based accounting method for employee stock options and
warrants, but has elected to disclose the pro forma net earnings and pro forma
earnings per share for employee stock option and warrant grants made beginning
in 1995 as if such method had been used to account for stock-based compensation
cost (Note 14).

(o) Comprehensive Income

In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in a separate financial statement included in a full
set of financial statements.  The Company has not provided additional financial
statement disclosure since the Company has no items of other comprehensive
income and, therefore, comprehensive income equaled net earnings for each of
the three years ended December 31, 1998.

                                    Page 21
<PAGE>

(2) Acquisitions

In July 1998, the Company acquired substantially all of the assets of the
Technology Services Group of Global Associates, Ltd., now operating as EDO
Technology Services and Analysis (EDO TSA), for $4.2 million in cash.  EDO TSA
provides technical services to various agencies of the U.S.  Department of
Defense.  The acquisition has been accounted for as a purchase and,
accordingly, the operating results of EDO TSA have been included in the
Company's consolidated financial statements since the date of acquisition. The
excess of the purchase price over the fair market value of net assets acquired
of approximately $2.4 million is being amortized over fifteen years.

In December 1998, the Company acquired all of the stock of Specialty Plastics,
Inc., now operating as EDO Specialty Plastics, in exchange for a $5.4 million
note, due January 1999.  EDO Specialty Plastics manufactures and installs
lightweight fiber composite pipe for use on offshore, deep-water oil production
platforms.  The acquisition has been accounted for as a purchase and,
accordingly, the operating results of EDO Specialty Plastics have been included
in the Company's consolidated financial statements since the date of
acquisition.  The excess of the purchase price over the fair market value of
net assets acquired of approximately $2.9 million is being amortized over
twenty years.

Also in December 1998, the Company acquired the assets of Zenix Products Inc.
(Zenix) for approximately $0.7 million in cash.  In addition, the Company is
required to pay the sellers a royalty of five percent of future sales, up to a
maximum of $1.2 million.  Zenix manufactures ferrite and dielectric ceramics
for the wireless communications base station industry.

Unaudited pro forma results of operations, assuming these acquisitions had been
made at the beginning of each period, which include adjustments to interest
expense, interest income, amortization expense and income tax expense are as
follows:
==============================================================================
                                                    1998               1997
                                                       (unaudited)
                                                     (in thousands)
------------------------------------------------------------------------------
Net sales                                    $   107,017        $   111,698
Net earnings available for common shares           6,967              5,339
------------------------------------------------------------------------------
Basic earnings per common share              $      1.06        $      0.85
Diluted earnings per common share            $      0.89        $      0.72
==============================================================================

The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the purchases been
made at the beginning of the periods, or of the results which may occur in the
future.

(3) Consolidation and Discontinuance of Product Lines

In December 1997, the Company made the decision to consolidate its Acoustic
Products product lines.  Several products were consolidated into the Company's
Electro-Ceramic Products operations and Combat Systems operations, and several
were discontinued.

In connection with the consolidation, the Company recorded a charge in 1997
(included in cost of sales) of $2,000,000, which was principally comprised of
the write-down of inventory related to the discontinued product lines to its
net realizable value.

(4) Discontinued Operations

Pursuant to a Board of Directors resolution in September 1996, the Company
adopted a plan to exit its energy-related businesses.  Those businesses
included:  the Company's 50.4% interest in EDO (Canada) Limited, a manufacturer
of compressed natural gas (CNG) fuel cylinders; EDO Automotive Natural Gas Inc.
(EDO ANGI), a designer and manufacturer of CNG refueling stations and related
equipment; and EDO Energy Corporation, a wholly owned subsidiary of the Company
involved in program management activities in CNG and other alternative fuel
projects.  In April 1997, the Company sold EDO ANGI for approximately the book
value of the related net assets.  In May 1997, EDO (Canada) Ltd. made a
voluntary assignment in bankruptcy pursuant to the Bankruptcy and Insolvency
Act of Canada.  EDO Energy Corporation satisfied most of its obligations in
1997 and ceased operations in 1998.  The terms of these events did not result
in a modification to the loss from discontinuing the businesses provided in
1996.

The consolidated financial statements of the Company reflect the effects of the
Company's decision to treat its energy-related businesses as discontinued
operations.  Accordingly, the revenues, costs and expenses, and cash flows
associated with the energy-related businesses are excluded from the respective
captions in the Consolidated Statements of Earnings and Statements of Cash
Flows.  The net operating results of these entities are reported as "Loss from
discontinued operations"; and the cash flows of these entities are reported as
"Net cash used by discontinued operations."

Net sales of the discontinued operations prior to the date of discontinuance
were $9,321,000 for the year ended December 31, 1996.

                                    Page 22
<PAGE>

(5) Accounts and Notes Receivable

Accounts receivable included $21,161,000 and $17,917,000 at December 31, 1998
and 1997, respectively, representing unbilled revenues.  Substantially all of
the unbilled balances at December 31, 1998 will be billed and are expected to
be collected during 1999.  Total receivables due from the United States
government, either directly or as a subcontractor to a prime contractor with
the government, were $23,330,000 and $11,822,000 at December 31, 1998 and 1997,
respectively.

The notes receivable of $3,225,000 at December 31, 1998, of which $925,000 is
included in current assets, relate to the sale of the Company's College Point
facility in January 1996.  The notes are due in varying annual amounts through
2004 and bear interest at 7%.  The notes receivable are secured by a mortgage
on the related facility.

(6) Inventories

Inventories are summarized by major classification as follows at December 31,
1998 and 1997:
              ==================================================
                                               1998         1997
                                                (in thousands)
              --------------------------------------------------
              Raw material and supplies   $   4,292    $   3,471
              Work-in-process                 5,262        3,120
              Finished goods                    276          225
              --------------------------------------------------
                                          $   9,830    $   6,816
              ==================================================

(7)   Property, Plant and Equipment, Net

The Company's property, plant and equipment at December 31, 1998 and 1997, and
their related useful lives are summarized as follows:
       ================================================================
                                      1998         1997
                                       (in thousands)          Life
       ----------------------------------------------------------------
       Machinery and equipment  $   43,177   $   53,418    3 - 10 years
       Leasehold improvements       10,385        8,687    lease terms
       ----------------------------------------------------------------
                                    53,562       62,105
       Less accumulated
        depreciation and
         amortization               39,598       49,240
       ----------------------------------------------------------------
                                $   13,964   $   12,865
       ================================================================

(8)   Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following at December
31, 1998 and 1997:
    =======================================================================
                                                      1998             1997
                                                          (in thousands)
    -----------------------------------------------------------------------
    Trade payables                               $   5,320        $   4,205
    Employee compensation and benefits               3,253            3,092
    Current portion of environmental obligation        464              571
    Other                                           15,390           13,905
    -----------------------------------------------------------------------
                                                 $  24,427        $  21,773
    =======================================================================

                                    Page 23
<PAGE>

(9)   Long-Term Debt and Line of Credit

Long-term debt of the Company at December 31, 1998 and 1997 consisted of the 7%
Convertible Subordinated Debentures Due 2011 that were issued in November 1986.
The debentures are convertible at the rate of 45.45 common shares for each
$1,000 principal amount, which is equivalent to $22 per share.  Debentures are
redeemable at the option of the Company at par and at the option of the holder
under certain circumstances involving a change in control of the Company.  The
Company is required to make sinking fund payments of $1,750,000 per year.  As
of December 31, 1998, the Company had $433,000 of these debentures remaining in
treasury which may be used to satisfy a portion of the sinking fund
requirements for 1999.  The remaining amount due in 1999 of $1,317,000 is
reflected in the current portion of long-term debt.  The carrying value of the
debentures as of December 31, 1998 is $29,317,000.  The Company estimates the
fair value of the debentures as of December 31, 1998 to be approximately
$25,212,000 based on yields of comparable financial instruments.

The Company has a $30.0 million revolving line of credit agreement with a
syndicate of banks for both short-term borrowings and letters of credit.  The
agreement expires on August 27, 2001 and provides that the portion available
for potential cash borrowings be reduced by the amount of outstanding letters
of credit.  As of December 31, 1998, the Company has outstanding approximately
$15.2 million of letters of credit.  Borrowings under the agreement bear
interest based on the bank's prime rate plus adjustments of up to 0.25%
depending on the ratio of net total debt to earnings as defined in the
agreement.  There are certain covenants placed on the Company that require that
several predetermined ratios be maintained.  At December 31, 1998, the Company
was in compliance with such covenants.  In addition, payments of common share
dividends will be limited to $0.28 per common share in any twelve-month period.
This obligation is secured by the Company's accounts receivable, inventory,
machinery and equipment.  There have been no direct borrowings under this
agreement.  Borrowings under this agreement would be senior to the debentures
described above.

(10) Employee Stock Ownership Plan and Trust

The Company's Employee Stock Ownership Plan (ESOP) provides retirement benefits
to substantially all employees.  During 1998, 1997 and 1996, respectively, cash
contributions of $1,020,000, $942,000 and $879,000 were made to the ESOP.  As
of December 31, 1998, there were 247,943 common shares in the ESOP.

During 1988, the Employee Stock Ownership Trust (ESOT) purchased 89,772
preferred shares from the Company for approximately $19,185,000.  The preferred
shares are being allocated to employees through 2003 on the basis of
compensation.  The preferred shares provide for dividends of 8% per annum,
which are deductible by the Company for Federal and state income tax purposes.
The tax benefit that is attributable to unallocated preferred shares is
reflected as an increase to retained earnings.  Each unallocated preferred
share is convertible at its stated conversion rate into 10 common shares.
Allocated preferred shares are convertible at the greater of the stated
conversion rate or the fair value of each preferred share ($214 at December 31,
1998) divided by the current market price of each common share.  As of December
31, 1998, 59,547 preferred shares have been allocated, 30,225 preferred shares
remained unallocated, and 29,131 of the allocated preferred shares have been
converted into 782,534 common shares.  Until converted, each preferred share is
entitled to 12.3 votes.  The preferred shares are entitled to vote on all
matters presented to holders of common shares voting together as a class,
except that certain amendments and mergers could entitle the holders of
preferred shares to vote separately as a class.  The ESOP provides for
pass-through of voting rights to the ESOP participants and beneficiaries.

The ESOT purchased the preferred shares from the Company using the proceeds of
a borrowing guaranteed by the Company.  The ESOT services this obligation with
the dividends received on the preferred shares and any additional contributions
from the Company as required.  Principal and interest payments on the note of
the ESOT are to be made in quarterly installments through 2003.  Interest is
charged at 82% of the prime lending rate.  During 1998, 1997 and 1996,
respectively, the Company's cash contributions and dividends on the preferred
shares were used to repay principal of $1,413,000, $1,308,000 and $1,211,000
and pay interest of $693,000, $780,000 and $865,000.  The guarantee agreement
provides that, if the Company is in default under the revolving line of credit
agreement described in Note 9, such default will also be considered a default
under the guarantee agreement, permitting the lender to demand payment of the
full amount of the borrowing.  The guarantee agreement also provides that the
Company may be obligated to prepay the ESOT loan through redemption of the
preferred shares at $213.71 per share upon the occurrence of certain prepayment
events.

                                    Page 24
<PAGE>

The fair value of the ESOT obligation approximates book value since the
interest rate is prime-based and accordingly is adjusted for market rate
fluctuations.

The ESOT's borrowing guaranteed by the Company is reflected as a liability on
the balance sheet with an equal amount as a reduction of shareholders' equity,
offsetting the increase in the capital stock accounts.  As the principal
portion of the note is repaid through 2003, the liability and the ESOT loan
obligation will be reduced concurrently.

(11) Federal Income Taxes

The 1998, 1997 and 1996 provision for Federal income taxes for continuing
operations was comprised of the following amounts:
             ================================================
                                       1998     1997     1996
                                           (in thousands)
             ------------------------------------------------
             Federal
             Current                $   740    $   -    $   -
             Deferred                   (40)       -        -
             ------------------------------------------------
             Total                  $   700    $   -    $   -
             ================================================

State income taxes of $586,000, $313,000 and $257,000 in 1998, 1997 and 1996,
respectively, are included in selling, general and administrative expenses.
The effective Federal income tax rate differed from the statutory Federal
income tax rate for the following reasons:
        ==============================================================
                                            Percent of Pretax Earnings
                                              1998     1997     1996
        --------------------------------------------------------------
        Tax at statutory rate                 34.0%    34.0%    34.0%
        Preferred share dividends             (2.0)    (2.4)    (1.2)
        Decrease in valuation allowance      (16.0)   (28.3)   (29.4)
        Foreign Sales Corporation benefit     (1.7)     -        -
        Other, net                            (6.5)    (3.3)    (3.4)
        --------------------------------------------------------------
        Effective Federal income tax rate      7.8%     -        -
        ==============================================================

The items that comprise the significant portions of deferred tax assets and
liabilities as of December 31, 1998 and 1997 are as follows:
    ======================================================================
                                                        1998         1997
                                                          (in thousands)
    ----------------------------------------------------------------------
    Deferred Tax Assets
    Postretirement obligation other than pensions  $   1,171    $   1,199
    U.S. net operating loss carryforwards              2,006        2,853
    Environmental obligation                               -          958
    R&D and alternative minimum
    tax credit carryforwards                           2,662        2,138
    Deferred compensation                              1,659        1,792
    Capital loss carryforwards                           976          976
    Other                                                143        1,080
    ----------------------------------------------------------------------
    Total deferred tax assets                          8,617       10,996
    Less: Valuation allowance                           (976)      (3,477)
    ----------------------------------------------------------------------
                                                       7,641        7,519
    ----------------------------------------------------------------------
    Deferred Tax Liabilities
    Depreciation and amortization                      2,407        3,535
    Identifiable intangible asset                        763            -
    Prepaid pension asset                              2,541        1,796
    Other                                                650        2,188
    ----------------------------------------------------------------------
    Total deferred tax liabilities                     6,361        7,519
    ----------------------------------------------------------------------
    Net deferred tax asset                         $   1,280        $   -
    ======================================================================

Deferred income tax assets as of December 31, 1998 include U.S. net operating
loss carryforwards and capital loss carryforwards for income tax purposes of
approximately $5,900,000 and $2,870,000, respectively, primarily expiring in
2009 and 2000, respectively.  R&D credits expire in the years 2008 and 2009.
Realization of these assets is dependent on future taxable earnings and capital
gains.  A valuation allowance has been established at December 31, 1998 for the
portion of the deferred tax asset representing capital loss carryforwards since
management cannot conclude that it is more likely than not that such asset will
be realized.

                                    Page 25
<PAGE>

(12) Shareholders' Equity

At various times beginning in 1983, the Board of Directors has authorized and
subsequently increased by amendments, a plan to purchase an aggregate amount of
4,190,000 common shares.  As of December 31, 1998, the Company had acquired
approximately 3,957,000 common shares in open market transactions at prevailing
market prices.  Approximately 2,135,000 of these shares have been used for
various purposes, including:  conversion of preferred shares; contributions of
common shares to the ESOP; grants pursuant to the Company's Long-Term Incentive
Plans; payment of directors' fees; partial payment of a 50% stock dividend; and
stock options exercised.  As of December 31, 1998 and 1997, respectively, the
Company held 1,821,634 and 2,054,474 common shares in its treasury for future
use.

At December 31, 1998, the Company had reserved, authorized and unissued common
shares for the following purposes:
            ======================================================
                                                            Shares
            ------------------------------------------------------
            Conversion of 7% Convertible
             Subordinated Debentures Due 2011            1,332,458
            Stock option and long-term incentive plans     908,450
            Conversion of preferred shares               1,081,000
            ------------------------------------------------------
                                                         3,321,908
            ======================================================

(13) Earnings Per Share

The following table sets forth the computation of basic and diluted earnings
per share:
   =========================================================================
                                              1998         1997        1996
                                                     (in thousands)
   -------------------------------------------------------------------------
   Numerator:
    Net earnings available
      for common shares                  $   7,168    $   5,900    $   3,252
    Impact of assumed conversion
      of preferred shares                      125           97            -
   -------------------------------------------------------------------------
    Numerator for diluted
      calculation                        $   7,293    $   5,997    $   3,252
   =========================================================================
   Denominator:
    Weighted average common
      shares outstanding                     6,549        6,261        5,975
    Dilutive effect of
      stock options                            155          151          111
    Dilutive effect of
      conversion of preferred shares         1,081          983        1,054
   -------------------------------------------------------------------------
    Denominator for diluted calculation      7,785        7,395        7,140
   =========================================================================

The assumed conversion of the convertible debentures was anti-dilutive for all
periods presented.

                                    Page 26
<PAGE>

(14) Stock Plans

The Company has granted nonqualified stock options to officers, directors and
other key employees under plans approved by the shareholders in 1996 and 1997,
which replaced all previous stock option and long-term incentive plans, for the
purchase of its common shares at the fair market value of the common shares on
the dates of grant.  Options under the 1996 plan generally become exercisable
on the third anniversary of the date of the grant and expire on the tenth
anniversary of the date of the grant.  The 1996 plan will expire in 2005.
Options under the 1997 plan, which pertains only to non-employee directors, are
immediately exercisable and expire on the tenth anniversary of the date of the
grant.  The 1997 plan will expire in 2006.

Changes in options outstanding are as follows:
===============================================================================
                      1998                   1997                  1996
               Weighted   Shares      Weighted   Shares     Weighted   Shares
                Average   Subject      Average   Subject     Average   Subject
               Exercise     to        Exercise     to       Exercise     to
                 Price    Option        Price    Option       Price    Option
-------------------------------------------------------------------------------
Beginning
 of year        $ 6.55    688,950     $ 6.57    737,313      $ 6.54    767,800
Options
 granted          8.66    100,750       7.20    157,750        5.54     27,500
Options
 exercised        6.29    (87,600)      7.26   (175,313)       5.12    (27,662)
Options
 expired/
 cancelled       11.21    (21,150)      6.39    (30,800)       6.30    (30,325)
-------------------------------------------------------------------------------
End of
 year           $ 6.72    680,950     $ 6.55    688,950      $ 6.57    737,313
-------------------------------------------------------------------------------
Exercisable
 at year end    $ 6.43    488,544
===============================================================================

The options outstanding as of December 31, 1998 are summarized in ranges as
follows:
  ===========================================================================
     Range of       Weighted Average       Number of         Weighted Average
  Exercise Prices    Exercise Price    Options Outstanding    Remaining Life
  ---------------------------------------------------------------------------
  $   3.07- 5.99        $   3.76            172,000                6 years
      6.00- 8.99            7.67            498,450                4 years
      9.00-11.56           10.12             10,500                5 years
  ---------------------------------------------------------------------------
                                            680,950
  ===========================================================================

In 1998, 25,774 common shares held greater than six months were utilized to
exercise stock options.  The 1996 plan also provides for restricted common
share long-term incentive awards as defined under the plan.  All common shares
authorized under the previous plans not yet awarded were canceled upon the
approval of the 1996 plan.  As of December 31, 1998, plan participants had been
awarded 298,500 restricted common shares.  Deferred compensation is recorded
for the fair value of the restricted common share awards on the date of grant
and is amortized over the five-year period the related services are provided.
The amount charged to operations in 1998, 1997 and 1996 was $401,000, $287,000
and $148,000, respectively.  As of December 31, 1998, 227,500 shares are
available for grant as stock options or awards.

The per share weighted-average fair value of stock options granted was $2.58,
$2.77 and $2.70 in 1998, 1997 and 1996, respectively, on the dates of grant
using the Black Scholes option-pricing model with the following
weighted-average assumptions:  1998 - expected dividend yield of 1.4%, risk
free interest rate of 5.0%, expected stock volatility of 20%, and an expected
option life of 7-1/2 years; 1997 - expected dividend yield of 1.3%, risk free
interest rate of 5.5%, expected stock volatility of 30%, and an expected option
life of 7-1/2 years; 1996 - expected dividend yield of 0%, risk free interest
rate of 6%, expected stock volatility of 40%, and an expected option life of
7-1/2 years.

The Company applies APB Opinion No. 25 in accounting for its stock option
grants and, accordingly, no compensation cost has been recognized in the
financial statements for its stock options, which have exercise prices equal to
or greater than the fair values of the common shares on the dates of the grant.
Had the Company determined compensation cost based on the fair values at the
grant dates for its stock options under SFAS No. 123, the Company's earnings
from continuing operations, and basic and diluted earnings from continuing
operations per common share would have been reduced to the pro forma amounts
indicated below:
     =====================================================================
                                                1998       1997       1996
                                                      (in thousands,
                                                except per share amounts)
     ---------------------------------------------------------------------
     Earnings from continuing operations:
      As reported                           $  8,231   $  7,027   $ 13,068
      Pro forma                                7,938      6,879     13,007
     Basic earnings per share:
      As reported                           $   1.09   $   0.94   $   1.99
      Pro forma                                 1.05       0.92       1.98
     Diluted earnings per share:
      As reported                           $   0.94   $   0.81   $   1.67
      Pro forma                                 0.90       0.79       1.66
     =====================================================================

                                    Page 27
<PAGE>

Pro forma earnings from continuing operations reflect only options granted
beginning in 1995.  Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma earnings
from continuing operations amounts presented above because compensation cost is
reflected over the options' vesting period and compensation cost for options
granted prior to January 1, 1995 was not considered.

(15) Other Employee Benefit Plans

The Company maintains a noncontributory defined benefit pension plan covering
substantially all of its employees.  The benefits are based on years of service
and the employee's highest five-year average base salary in the final ten years
of employment.  The Company's funding policy is to make annual contributions to
the extent such contributions are actuarially determined and tax deductible.

The net pension income for 1998, 1997 and 1996 was $2,192,000, $1,185,000, and
$1,285,000, respectively.  The expected long-term rate of return on plan assets
was 9.0% in 1998, 1997 and 1996.  The actuarial computations assumed a discount
rate on benefit obligations at December 31, 1998 and 1997 of 6.75% and 7.0%,
respectively.  The assumed rate of compensation increase approximates the
Company's previous experience.  The assets of the pension plan consist
primarily of equity and fixed income securities, which are readily marketable.

A summary of the components of net periodic pension income follows:
    =======================================================================
                                              1998        1997        1996
                                                   (in thousands)
    -----------------------------------------------------------------------
    Service cost                          $ (1,495)   $ (1,380)   $ (1,277)
    Interest on projected benefit
     obligation                             (6,124)     (5,999)     (5,359)
    Expected return on plan assets           9,586       8,527       7,777
    Amortization of transitional assets          8           8           8
    Amortization of prior service cost        (208)       (208)       (119)
    Amortization of gain                       425         237         255
    -----------------------------------------------------------------------
    Net pension income                    $  2,192    $  1,185    $  1,285
    =======================================================================

The following sets forth the funded status of the plan as of December 31:
       =================================================================
                                                        1998       1997
                                                        (in thousands)
       -----------------------------------------------------------------
       Change in projected benefit obligation:
        Projected benefit obligation
          at beginning of year                      $ 88,654   $ 76,290
        Service cost                                   1,495      1,380
        Interest cost                                  6,124      5,999
        Benefits paid                                 (5,600)    (5,350)
        Actuarial loss                                 4,580     10,335
       -----------------------------------------------------------------
        Projected benefit obligation
          at end of year                            $ 95,253   $ 88,654
       -----------------------------------------------------------------
       Change in plan assets:
        Fair value of plan assets at
          beginning of year                          109,793     97,837
        Actual return on plan assets                   7,242     17,306
        Benefits paid                                 (5,600)    (5,350)
       -----------------------------------------------------------------
        Fair value of plan assets
          at end of year                            $111,435   $109,793
       -----------------------------------------------------------------
       Funded status                                $ 16,182   $ 21,139
       Unrecognized net gain                          (9,636)   (16,985)
       Unrecognized prior service cost                   952      1,160
       Unrecognized net assets                           (25)       (33)
       -----------------------------------------------------------------
       Prepaid pension cost (in other assets)       $  7,473   $  5,281
       =================================================================

In addition, the Company established in 1988 a supplemental defined benefit
plan for substantially all employees.  In 1998, 1997 and 1996, the net pension
expense for this plan was approximately $126,500, $125,900, and $64,800,
respectively.

The Company also has a supplemental retirement plan for officers and certain
employees under which the Company has agreed to pay a predetermined retirement
benefit.  In the event of preretirement death or disability, the plan provides
for similar benefits.  Total expenses under this plan in 1998, 1997 and 1996
were $672,000, $600,000 and $585,000, respectively.

                                    Page 28
<PAGE>

(16) Postretirement Health Care and Life Insurance Benefits

The Company provides certain health care and life insurance benefits to
qualified retired employees and dependents at certain locations.  These
benefits are funded on a pay-as-you-go basis, with the retiree paying a portion
of the cost through contributions, deductibles and coinsurance provisions.  The
Company has always retained the right to modify or terminate the plans
providing these benefits.

In accordance with SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," the Company recognizes these benefit expenses on
an accrual basis as the employees earn them during their employment rather than
when they are actually paid.

Postretirement health care and life insurance expense (income) included the
following components:
    ======================================================================
                                              1998       1997       1996
                                                    (in thousands)
    ----------------------------------------------------------------------
    Service cost                            $   41     $   36     $   42
    Interest cost                              237        250        320
    Amortization of prior service cost           -          -       (796)
    Amortization of net unrecognized gain        -        (15)       (36)
    ----------------------------------------------------------------------
    Total postretirement health care
     and life insurance expense (income)    $  278     $  271     $ (470)
    ======================================================================

During 1996, the Company recognized a non-cash curtailment gain of $7,120,000
in connection with the discontinuance of postretirement medical benefits for
Medicare-eligible retirees.  This gain represents the reversal of a significant
portion of the postretirement obligation established upon the adoption of SFAS
No. 106 in 1993.

The funded status and breakdown of the postretirement health care and life
insurance benefits are as follows as of December 31:
           ========================================================
                                                    1998      1997
                                                    (in thousands)
           --------------------------------------------------------
           Change in accumulated
             postretirement benefit obligation:
            Accumulated benefit obligation
              at beginning of year               $ 3,574   $ 3,521
            Service cost                              41        36
            Interest cost                            237       250
            Benefits paid                           (392)     (794)
            Participant contributions                 31        54
            Actuarial loss                            15       380
            Change in discount rate                   66       127
           --------------------------------------------------------
           Unfunded accumulated postretirement
             benefit obligation at end of year   $ 3,572   $ 3,574
           Unrecognized net loss                    (129)      (48)
           --------------------------------------------------------
           Accrued postretirement benefit cost   $ 3,443   $ 3,526
           ========================================================

Actuarial assumptions used in determining the accumulated postretirement
benefit obligation include a discount rate of 6.75% and 7.0% at December 31,
1998 and 1997, respectively, and estimated increases in health care costs.  The
Company has limited its increase in health care costs to 5% per year by
requiring the retirees to absorb any costs in excess of 5% and has used such
rate to measure its obligation.

(17) Commitments and Contingencies

The Company is contingently liable under the terms of letters of credit (Note
9) aggregating approximately $15,221,000 at December 31, 1998, should it fail
to perform in accordance with the terms of its contracts with foreign
customers.

At December 31, 1998, the Company and its subsidiaries were obligated under
building and equipment leases expiring between 1999 and 2012.  Minimum future
rentals under those obligations with noncancellable terms in excess of one year
are as follows:

   1999 - $ 3,764,000
   2000 - $ 3,717,000
   2001 - $ 3,670,000
   2002 - $ 3,301,000
   2003 - $ 3,047,000
   Thereafter - $ 8,961,000

Rental expense under such leases for the years ended December 31, 1998, 1997
and 1996 amounted to $3,221,000, $3,555,000 and $3,490,000, respectively.

                                    Page 29
<PAGE>

(18) Legal Matters

The Company and three other companies entered into a consent decree with the
Federal government for the remediation of a Superfund site.  The Superfund site
has been divided into three operable units.  The consent decree relates to two
of the operable units.  The third operable unit has not been formally studied.
The Company believes that the aggregate amount of the obligation and timing of
cash payments associated with these two operable units are reasonably fixed and
determinable.  Accordingly, the environmental obligation has been discounted at
five percent.  Management estimates that as of December 31, 1998, the
discounted liability over the remainder of the twenty-seven years related to
these two operable units is approximately $3.0 million of which approximately
$0.5 million has been classified as current and is included in accounts payable
and accrued liabilities.  Approximately $1.2 million of the $3.0 million
liability will be incurred over the next five years.  In 1998 and 1997, the
Company settled with one of its insurance carriers for $2,200,000, net of
associated costs of $300,000, and $2,900,000, respectively, which was recorded
as litigation settlement income.  All $5,100,000 was collected in 1998.

The Company is also involved in other environmental cleanup efforts, none of
which management believes is likely to have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.

Additionally, the Company and its subsidiaries are subject to certain legal
actions that arise out of the normal course of business.  It is management's
belief that the ultimate outcome of these actions will not have a material
adverse effect on the Company's consolidated financial position, results of
operations, or liquidity.

(19) Business Segments

The Company operates in two segments that have been organized by the products
and services they offer, as follows:  Defense and Aerospace Systems, and
Satellite Products.  The Defense and Aerospace Systems segment sells its
products and services primarily to customers in the defense industry.  The
Satellite Products segment sells its products to customers in the satellite
industry.

Domestic government sales, which include sales to prime contractors of the
government, amounted to 47%, 41% and 36% of net sales, which were 49%, 44% and
44% of Defense and Aerospace Systems net sales and 33%, 30% and 16% of
Satellite Products net sales for 1998, 1997 and 1996, respectively.  Export
sales comprised 30%, 33% and 35% of net sales for 1998, 1997 and 1996,
respectively.

Principal products and services by segment are as follows:

  Defense and Aerospace Systems Segment
    Marine and Aircraft Systems
      Aircraft Stores Suspension and Release Equipment
      Airborne Mine Countermeasures Systems
    Combat Systems
      Command, Control and Communications Systems
      Undersea Warfare Sonar
      Technology Services and Analysis
    Electro-Ceramic Products
    Fiber Composite Products
  Satellite Products Segment

                                    Page 30
<PAGE>

       =================================================================
                                             1998       1997       1996
                                                  (in thousands)
       -----------------------------------------------------------------
       Net sales:
        Defense and Aerospace Systems    $ 81,403   $ 73,708   $ 68,716
        Satellite Products                 14,657     20,654     25,870
       -----------------------------------------------------------------
                                         $ 96,060   $ 94,362   $ 94,586
       -----------------------------------------------------------------
       Operating earnings (loss):
        Defense and Aerospace Systems    $ 10,315   $  6,164   $  8,711
        Satellite Products                 (3,056)    (1,528)    (1,931)
        Litigation settlement income        2,200      2,900          -
        Postretirement health
          care curtailment gain                 -          -      7,120
       -----------------------------------------------------------------
                                         $  9,459   $  7,536   $ 13,900
       Net interest expense                   428        459        766
       Other expense                          100         50         66
       -----------------------------------------------------------------
       Earnings before
         Federal income taxes            $  8,931   $  7,027   $ 13,068
       -----------------------------------------------------------------
       Identifiable assets:
        Defense and Aerospace Systems    $ 56,066   $ 31,561   $ 34,083
        Satellite Products                 22,133     27,909     27,961
        Corporate                          48,554     49,331     32,179
       -----------------------------------------------------------------
                                         $126,753   $108,801   $ 94,223
       -----------------------------------------------------------------
       Depreciation and amortization:
        Defense and Aerospace Systems    $  2,008   $  3,507   $  3,380
        Satellite Products                  2,235      2,343      1,765
        Corporate                             331        177        158
       -----------------------------------------------------------------
                                         $  4,574   $  6,027   $  5,303
       -----------------------------------------------------------------
       Capital Expenditures:
        Defense and Aerospace Systems    $  3,121   $  1,788   $    660
        Satellite Products                    488      2,180      3,365
        Corporate                              12        115        202
       -----------------------------------------------------------------
                                         $  3,621   $  4,083   $  4,227
       =================================================================

KPMG LLP
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
EDO Corporation

We have audited the accompanying consolidated balance sheets of EDO Corporation
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of earnings, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1998.  These consolidated
financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EDO Corporation and
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted accounting principles.

KPMG LLP

Melville, New York
February 12, 1999

                                    Page 31
<PAGE>

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table sets forth unaudited quarterly financial information for
1998 and 1997 (in thousands, except per share amounts).
==============================================================================
                First Quarter   Second Quarter  Third Quarter   Fourth Quarter
                 1998    1997    1998    1997    1998    1997    1998    1997
------------------------------------------------------------------------------
Net sales      $23,301 $23,704 $23,397 $23,193 $23,171 $23,246 $26,191 $24,219
Operating
  earnings       1,943   1,784   2,369   1,835   2,431   1,916   2,716   2,001a
Net earnings     1,905   1,561   2,278   1,703   2,272   1,878   1,776   1,885
Earnings
  per share:
 Basic            0.25    0.21    0.31    0.23    0.30    0.25    0.23    0.25
 Diluted          0.22    0.18    0.27    0.20    0.26    0.22    0.20    0.22
Preferred
  dividends
  paid             277     290     263     281     264     281     259     275
==============================================================================
(a) Includes a charge of approximately $2,000 for the consolidation and
discontinuance of an Acoustic Products product line.

                                    Page 32
<PAGE>
                                 EXHIBIT INDEX

Exhibits which are noted with an asterisk (*) are management contracts or
compensatory plans or arrangements.

3(i) Certificate of Incorporation of the Company and amendments thereto dated
June 14, 1984, July 18, 1988 and July 22, 1988 (incorporated by reference to
Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994), as further amended by amendment thereto dated July
29, 1998 (filed herewith).

3(ii) By-Laws of the Company.  Incorporated by reference to Exhibit 3(ii) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996.

4(a) Loan Agreement, dated as of September 9, 1998, between Mellon Bank, NA,
et. al., and EDO Corporation.  Incorporated by reference to Exhibit 4(a) to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September
26, 1998.

4(b) Amendment No. 1 to the Loan Agreement referred to in Exhibit 4(a) above,
effective December 31, 1998.

4(c) Guarantee Agreement, dated as of July 22, 1988, restated as amended
through Amendment No. 13, effective December 31, 1998, made by the Company in
favor of Mellon Bank as successor in interest to Fleet Bank as successor in
interest to NatWest Bank and Manufacturers Hanover Trust Company.

10(a)* EDO Corporation 1996 Long-Term Incentive Plan.  Incorporated by
reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.

10(b)* EDO Corporation Executive Termination Agreements, as amended through
November 24, 1989, between the Company and three employees.  Incorporated by
reference to Exhibit 10(f) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.

10(c)* Executive Life Insurance Plan Agreements, as amended through January 23,
1990, between the Company and 30 employees and retirees.  Incorporated by
reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.

10(d)* Form of Directors' and Officers' Indemnification Agreements between EDO
Corporation and 14 current Company directors and officers.  Incorporated by
reference to Exhibit 10(d) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.

10(e) Consent Decree, entered on November 25, 1992, amongst the United States,
EDO Corporation, Plessey, Inc., Vernitron Corporation and Pitney Bowes, Inc.

10(f) EDO Corporation 1997 Non-Employee Director Stock Option Plan.
Incorporated by reference to Appendix A to the Company's Definitive Proxy
Statement dated March 21, 1997.

10(g) EDO Corporation Compensation Plan for Directors (filed herewith).

21 List of Subsidiaries.

23 Consent of Independent Auditors to the incorporation by reference in the
Company's Registration Statements on Form S-8 of their report included in Item
14(a)1 of this Annual Report on Form 10-K.

24 Powers of Attorney used in connection with the execution of this Annual
Report on Form 10-K.

27 Financial Data Schedule.